Display advertising value chain and ad-technology

The process of buying and selling display ad space has evolved over time. What started as a simple process of direct interaction between the sellers and buyers, has now grown into a complex value chain with multiple players interacting with each other to increase process efficiency, reduce human errors, optimize ad sales real time and obtain the best monetary value. This complex value chain is in turn powered by technology, popularly known as Ad-Tech or advertising technology. This refers to technologies that seek to automate the buying, placement, and optimization of advertising.

The following is a typical value of display ad sales process between advertisers (companies sponsoring the ad) and audience (those receiving or consuming the ad).

In order to fully comprehend this space, it is imperative to understand each of the elements involved in this value chain. So let’s begin then…

Publisher is the owner of advertising inventory and is the point of contact with the audience. Advertising inventory is the number of advertisements or the amount of ad space, a publisher has available to sell to an advertiser. Ad inventory is often calculated by the month. The ad space can be across multiple platforms, including internet pages, mobile, social media etc. The currency or the value of ad inventory is often measured in impressions or site traffic or ad views that the publisher can deliver to the advertiser. Ad location is another variable that impacts the value of an ad. For example, banner ads across the top of a page in a prominent position that are visible without scrolling are more expensive than other remote parts of the web page.

Publishers typically sell their Ad inventory in two ways, direct and remnant. The direct sales are fixed transactions between brands and the publisher. The brand pays the publisher to serve ads on publishers’ websites. Direct sales are handled by the publisher’s sales teams while the publisher relies on third parties for the sale of their remnant ad inventory that which is not sold directly.

Ad Exchange is a technology platform that facilitates the buying and selling of advertising inventory. The inventory is sold to the highest bidder and almost all ad exchanges operate on a second price auction model, i.e. inventory is sold to the highest bigger at the price of the second highest bidder. Ad exchanges get the inventory from the publishers and the revenue per ad sold is shared between the two in some percentage mix (ex. 70% for publisher and 30% for ad exchange etc). A publisher often reaches the ad exchange through other third parties and the revenue of a sold ad is split among these parties too.

Ad networks are legacy platforms of the previous generation architecture and came into existence as the number of publisher(s)/websites and there by the inventory began to explode. Marketers were finding it difficult to deal directly with the deluge of publishers and preferred to deal with ad networks that acted as a sales broker for publishers. These networks aggregated the unsold inventory, categorized it as per audiences and sold the packaged inventory to the buyer. Typically, the agreements that ad networks had with the publishers were not exclusive and multiple ad networks carried the inventory of a publisher leading to duplication. The issue further aggravated with the increase in ad networks, thereby generating a demand for greater efficiency in this process and gave rise to ad exchanges. However, ad networks still continue to exist and can both directly sell ads to media agencies or interact with buy side platforms as well as interface with ad exchanges or SSPs.

SSPs or Supply side platforms are technology platforms that came into existence to help publishers manage their inventory and maximize their yields from the inventory sales. As mentioned earlier, publishers run certain sales campaigns directly and sell their remnant inventory through ad networks / ad exchanges. However, the publishers usually want to maximize their yields across all different types of sales and SSPs position themselves as a platform that is capable of managing across this layer cake and achieve incremental yields that a human might not be able to see or realize. Overtime, this platform has become more and more real-time.

DSPs or demand side platforms are technology platforms that help in purchasing the inventory across channels (display, video, social or mobile) from ad-exchanges or ad-networks in an automated fashion. These are the buy side equivalents of SSPs and are powered by similar technology. DSPs allow targeted purchase of ad impressions based on user attributes of the impressions, such as geography, purchase behavior etc. Often the price of the impressions is determined by a real-time auction, through a process known as real-time bidding. This process does not need human salespeople to negotiate prices with buyers, because impressions are simply auctioned off to the highest bidder, and this process takes place in milliseconds, as a user’s computer loads a webpage. DSPs charge a simple fee based on the sales for this facilitation process.

ATDs or Agency trading desks are centralized management platforms audience buying and are used by ad agencies. These are layered on top of a DSP and attempt to help clients improve their advertising performance and receive increased value from their display advertising. Trading desk staff don’t just plan and buy media but also measure results and report audience insights to their clients. A typical architecture is as follows:

The above is broad synopsis of various players involved in the value chain of display advertising and with time, each of the players in the value chain are evolving by developing more sophisticated platforms capable of performing one or more functions in the value chain.

The immediate next step is to understand various players currently operating across each of these segments. This is continued in the next in a desperate attempt to manage the length of the blog postJ.